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Vietnam sets 7 pct coupon limit for $1 billion debt sale   2010-01-19 - Bloomberg

Vietnam plans to sell US$1 billion of dollar-denominated 10-year bonds at a coupon of not more than 7 percent as early as this week, the central bank said.


The Finance Ministry will determine an appropriate time for the issuance “as long as the interest rate for the 10-year bonds doesn’t exceed 7 percent per year,” the State Bank of Vietnam said in a statement. That would be higher than the 5.67 percent yield on similar-maturity notes sold by the Philippines and the 6 percent paid by Indonesia.

The government’s second overseas sale of dollar debt comes after accelerating inflation and a widening trade deficit eroded confidence in the dong, which is trading near a record low. Indonesia raised $2 billion last week after scaling back its sale and canceling a planned issue of 30-year notes, raising concern demand for emerging-market debt is waning.

“The new issue should have an absolute yield of around 6.85 percent to 7 percent,” said Sergey Dergachev, who helps oversee $250 billion in assets, including $6 billion in emerging-market debt, at Frankfurt-based Union Investments. “Vietnam is economically much weaker, with significant twin deficits and a highly managed exchange rate.”

Vietnam is rated Ba3 by Moody’s Investors Service, three levels below investment grade. That’s on a par with the Philippines and one grade weaker than Indonesia.

Vietnam’s dollar-denominated bonds returned 25 percent in the past year through Jan. 15, trailing a 56 percent rally in Indonesian notes, according to indexes compiled by JPMorgan Chase & Co. Phillipine debt gained 21 percent over the same period. The EMBI Global Composite Index, which tracks the debt of 37 developing nations, climbed 29 percent.

Wider spreads

Vietnam sold $750 million of 10-year bonds with a coupon of 7.125 percent at its first global bond sale in October 2005, a premium of 2.56 percentage points over Treasuries. The 2016 notes yielded 6.158 percent yesterday, giving a spread of about 3.33 percentage points, according to Bloomberg data.

Indonesia’s 10-year bonds offered a premium of 2.28 percentage points at its Jan. 12 sale, while the Philippine debt gave an extra yield of 1.84 percentage points on Jan. 6.

Deputy Finance Minister Tran Xuan Ha will meet investors in London Tuesday, Boston on Jan. 20 and New York the following day, the central bank said. Barclays Capital Plc, Citigroup Inc. and Deutsche Bank AG are managing the sale.

“Vietnam’s bond performance will depend on where they price the issue,” said Michael Pisler, an emerging-market debt trader at SJS Markets Ltd. in Hong Kong. “It doesn’t come to the market as often as Indonesia or the Philippines, so investors will want yield enhancement to compensate for the lack of liquidity.”

Dollar shortage

The new bond offering will help finance projects of Vietnam Oil & Gas Group, Vietnam National Shipping Lines, Song Da Corp., and Vietnam Machinery Installation Corp., the State Bank of Vietnam said in a statement posted on its website.

Proceeds of the sale may also help ease a shortage of dollars in the country that forced the central bank to devalue the local currency by 5.4 percent last year. The dong traded at 18,474 in Hanoi, having reached a record-low 18,500 in November.

Vietnam’s consumer prices rose 6.52 percent in December from the year-earlier period, compared with an inflation rate of 4.35 percent in November. The trade balance swung from a first- quarter surplus to a $12.25 billion deficit for all of 2009.

The country has about $16 billion in foreign-exchange reserves, central bank Deputy Governor Nguyen Van Binh said in Hanoi on Dec. 3. The World Bank estimates the nation’s reserves totaled $23 billion at the end of 2008.

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